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Thursday was a strange day in the stock market. This could be good news
Traders work on the floor of the New York Stock Exchange on June 24, 2024.
Brendan McDermid | Reuters
Wall Street saw a dramatic shift in market trends on Thursday, with winners and losers trading places for a day. It could end up being just what the rally needs to keep going.
O Russell 2000 The small-cap index, which has struggled to find its footing all year, jumped more than 3% on Thursday. At the same time, all stocks in the so-called Magnificent Seven fell, including a decline of more than 5% for Nvidia and a drop of 2.3% for Litterthat dragged down both the S&P 500 Index It is Nasdaq Composite.
Bespoke Investment Group shared two statistics about the social media site X to demonstrate how rare it is to have this type of division.
- Thursday was only the second day since 1979 that the Russell 2000 rose more than 3% while the S&P 500 fell.
- The Nasdaq Composite underperformed the Russell 2000 by more than 5 percentage points in what appears to be the largest daily gap on record. The only other time the gap was above 5 percentage points was in November 2020, shortly after Pfizer shared positive results from a Covid-19 vaccine trial.
While major market averages and many individual 401(k) accounts may be showing declines on the day, this odd set of results could be a positive sign for the market. Much of the recent rally has been driven by big tech companies, leading investment professionals to worry about a select group of stock market leaders.
“Today is an important day,” said Ed Yardeni of Yardeni Research on the “Closing Bell. “This is the day that investors are starting to move out of the Magnificent Seven and into the rest of the market. I don’t think it will continue to drag the S&P 500 down — I think there will be enough money to keep the major stocks that have done so well reasonably high, but I think we will see further gains in the S&P 493 as well as in small- and mid-cap stocks,” he added.
The split trade came after the June consumer price index report on Thursday showed overall inflation refused last month and is now up about 3% from a year ago. That has bolstered confidence that the Federal Reserve will start cutting interest rates as early as September. Federal Reserve Chairman Jerome Powell indicated in testimony to Congress this week that the central bank was aware that keeping rates high for too long could hurt the economy.
“Investors are pivoting. They’re jumping from the large-cap tech market to the mid- and small-cap market, along with the real estate market,” Sam Stovall, chief investment strategist at CFRA Research, told CNBC. “They were waiting for maybe not a guarantee, but certainly a confirmation that the Fed is likely to start cutting interest rates, and not do so in reaction to a recession.”
Activity in the bond market supports this idea. Yields in US Treasury Bonds fell across the board on Thursday, meaning government bond prices were recovering.
“You have a positive CPI on the back of a slightly dovish Powell,” Ross Mayfield, an investment strategy analyst at Baird, told CNBC. “Rates have come down a lot, and you have a kind of rotation trade. But the problem with the market being so concentrated in Big Tech is that the rotation trade can look like a surface-level negative. And I think we’re seeing a little bit of that today,” he said.
There have also been signs in recent months that the U.S. economy is weakening. A slow growth or recessionary environment would be tough on small-cap stocks, which tend to be more economically sensitive and domestically oriented than larger companies.
— CNBC’s Sarah Min and Alex Harring contributed reporting.